EMI Music revenue shrinks by 15%


LONDON - Against a backdrop of "very challenging" market trends, EMI Group Plc. is forecasting a 15% contraction in revenue from its recorded music division.

In a trading update delivered this morning to the London Stock Exchange, the British-based major also noted that it is eyeing-up a securitisation of its music publishing assets, and has suspended its dividend payments.

Despite the harsh revenue forecast for EMI Music, the group said constant currency sales for its record division in the year to March 31 were in-line with guidance published in February.

The British firm said EMI Music's digital revenue had increased by 59% and currently represents about 10% of its revenue.

EMI Music Publishing, typically the group's most consistently-buoyant division, is likely to register "broadly flat" revenue at constant currency, underpinned by a 28% rise in digital revenue. Digital formats now generate 8% of the publishing division's sales.

The music major expects to report underlying group earnings before interest, tax, depreciation and amortization (EBITDA), before exceptional items, of about £174 million for the financial period, which it claimed was ahead of market expectations.

EMI Music's operating margin is expected to drag for the financial year, while EMI Music Publishing's operating margin has continued to improve thanks to reductions in its cost base.

Stock in EMI was up 5.92% to 228 pence in morning trading. The company's shareprice had dipped in recent days on speculation of a damaging EMI results forecast, following-on from two earlier profit warnings.

EMI Group Eric Nicoli remains typically upbeat, and says the company has made the necessary strategic steps to safeguard its future. "Our industry is changing at an unprecedented pace and we are committed to accelerating the transformation of our business to realise the opportunities before us," Nicoli comments.

"We have launched a number of significant digital initiatives - most recently the introduction of DRM-free superior sound quality downloads across our entire digital repertoire - which reflect our optimism about the digital environment."

"Such initiatives, coupled with tough management actions," he said in its Wednesday statement, "position the group to make good progress in the future."

EMI will issue its preliminary results on May 23.

The group said it has made further "good progress" with its cost savings program and had completed the majority of actions outlined in its £110 million ($219 million) restructuring plan. EMI said it expects at least £70 million of the savings to be achieved by March 31, 2008, with the remainder being reflected in the results for the year ending March 31, 2009.

EMI said it has appointed Deutsche Bank and the Royal Bank of Scotland as lead arrangers of the potential securitisation of its publishing assets, for which it aims for completion by the end of this financial year,

In view of its funding requirements, the group said, dividend payments will be suspended until the "benefits of the restructuring process have been fully realized."

The group did not give an update on its on-off merger flirtations with Warner Music Group. Those talks have officially been "off" since EMI rebuked WMG's bid approach in February.